NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB' rating on approximately $17.8 million St. John's County Industrial Development Authority fixed-rate revenue bonds series 2007, issued on behalf of Life Care Ponte Vedra (dba Vicar's Landing; VL).
The Rating Outlook is Stable.
SECURITY
The bonds are secured by a gross pledge, first mortgage lien, security and interest in residency agreements, and a debt service reserve fund.
KEY RATING DRIVERS
CONSISTENT OPERATING PERFORMANCE: VL has produced very consistent operating performance over the last four audited years, averaging a 94.2% operating ratio and a net operating margin-adjusted of 28.4%, both exceeding Fitch's 'BBB' category medians. Over this time, coverage of maximum annual debt service (MADS) has been very steady at around 2x, in line with the 'BBB' category median.
STRONG IL OCCUPANCY: Supporting the consistent financial performance has been high ILU occupancy, which was 96% at March 31, 2015, and above 95% in each of the four prior years. Fitch views VL's strong historical occupancy as a primary credit strength.
HEAVY CAPITAL SPENDING: Over the last four years VL's capital spending has averaged 231.8% of depreciation expense. The capital projects included a new community center and refurbishment of much of the campus. The projects should finish up in 2015, and Fitch expects VL's capital spending to moderate over the next three years, helping VL to grow into it debt.
FAVORABLE SERVICE AREA CHARACTERISTICS: VL is located in Ponte Vedra Beach, FL, and serves an upscale service area in the northeastern portion of Florida. VL's location in Ponte Vedra Beach and entrance fees that are in line with area housing prices help support the consistent ILU demand.
RATING SENSITIVITIES
STABLE FINANCIAL PROFILE: Fitch expects Life Care Ponte Vedra's (dba Vicar's Landing) coverage and cash flow to remain stable supported by continued high ILU occupancy and turnover. An easing of the debt burden coupled with growth in liquidity could lead to positive rating action. A sustained period of lower financial performance could lead to negative pressure on the rating.
CREDIT PROFILE
Vicar's Landing is a Type A life-care continuing care retirement community (CCRC) consisting of 227 ILUs, 38 private ALUs, and 60 SNF beds. The community is located approximately 20 miles southeast of downtown Jacksonville, FL. In fiscal 2014, VL's total operating revenue totaled $19.1 million.
Strong Overall Occupancy
VL IL occupancy has remained above 95% through the four year historical period, with IL units often 100% sold and just waiting to be renovated as part of the process of turnover. VL wait-list contains over 200 prospective residents which should further ensure occupancy stability over the medium term. Through the interim period ALU and SNF occupancies have been below historical levels at 75% and 84%, respectively; however, this is less of a credit concern given VL's Type-A contract and VL's steady operating performance.
All of VL's operating ratios consistently exceed Fitch's 'BBB' category medians. Three month 2015 results show continued strength in the operating performance, with a 93.1% operating ratio and a 24% net operating margin adjusted both exceeding Fitch's 'BBB' category medians of 97.4% and 20%, respectively.
Capital Projects Winding Down
Over the past few years, VL undertook a number of projects to address aging buildings on its 25 year old campus. The projects included a new two story addition to the community center, renovation of the existing wing of the community center, the replacing of siding and windows on apartments and patio homes, replacement of campus elevators, and a campus wide wireless signal project. . The projects were funded by a $16 million debt issue in 2014 and approximately $1 million in equity. As a result VL's debt burden is somewhat high as indicated by MADS equating to 15.5% of 2014 revenues as compared to the category median of 12.3%.
Starting in 2016, VL's capital expenditures should begin to moderate, and Fitch does not expect VL to issue any additional debt over the next two years, which should help VL to continue to grow into the $16 million of debt issued to fund the projects.
Overall, Fitch views the projects positively as they will continue to keep VL's campus marketable for the long term. VL management reports that the community center that opened has been received positively by both current and potential residents. In addition, as units turnover, VL will be completing extensive renovations to bring these units up to the standards VL implemented in February 2010. More than 50% of the units have already been renovated and the remainder will be upgraded as residents choose their finishes.
Debt profile/Glenmoor Update
Fitch views VL's debt profile as moderate, consisting of approximately 76% fixed-rate and 24% variable-rate debt with no outstanding swaps. However, approximately half of VL's debt is a bank placement, which is aggressive. However, the bank debt conforms to the 2007 MTI, with the bank having no additional covenants or additional debt acceleration capabilities, during the 10-year initial term of the bonds.
VL's sister facility, Glenmoor Retirement, which is a Type-A CCRC located in St. Augustine, FL., failed to reach the coverage covenants on debt that it refinanced after emerging from bankruptcy in 2014. Most of VL's senior management team manages Glenmoor as Life Care Pastoral Services has a management agreement with both facilities. Management has entered into a forbearance agreement for the covenant violation and is, collectively with bondholder representatives, seeking an affiliation for the facility.
In the past, VL has provided financial support to Glenmoor in the amount of $5.5 million, which grew to over $8 million with interest. VL will write this amount off. Fitch's rating assumes that no additional financial support will be provided by VL to Glenmoor.
DISCLOSURE
VL's covenants to provide annual and quarterly disclosure through the Municipal Rule Making Board's EMMA system.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Not-for-Profit Continuing Care Retirement Communities Rating Criteria (pub. 24 Jul 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752470
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988896
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988896
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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